My 9 Favorite Startup Lessons From Startup School

Today, I attended Y Combinator’s annual Startup School at Stanford University. From the 11 talks by startup founders and funders full of first-person lessons, here are what I thought were the most resonant tips for entrepreneurs.

Quora co-founder Adam D'Angelo speaks at Startup School

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Be a Cockroach.AirBnB started a little over 1,000 days ago, and it failed and launched something like five times before taking off, said CEO Brian Chesky. After maxing out at least four credit cards, at one point the company basically turned into a collectible cereal box distribution company, and after that died down, the founders lived on the leftover cereal for two months. The company was on the brink of doom when Y Combinator accepted it for its three-month program in spring 2009, mostly because Paul Graham was “looking for people who wouldn’t die. He said ‘You guys won’t die, you’re like cockroaches.'” By the end of Y Combinator, AirBnB was profitable. The company’s traffic and revenue have only really taken off in the last five months, said Chesky, meaning “our ‘overnight’ success took 1,000 days.”

Don’t Do a Music Startup. Former Imeem CEO Dalton Caldwell gave a crowd-pleasing talk about the failures of his music startup (which sold to MySpace (s nws) and effectively died about a year ago). Imeem raised over $50 million from investors including Sequoia Capital, acquired three companies,had a headcount of 95 and reached $24 million in yearly revenue runrate. But that was nowhere near good enough. Caldwell doubts any other startup can change the music industry either, picking apart ad-supported, subscription, download and other business models to prove his point.

“For the past few years, music startups have been money transfer funds,” Caldwell said, bringing money out of VCs’ pockets, into startups, and directly to the music labels through “quarterly minimum” payments and other extractions like settlements and advances. But music startups are basically unacquirable due to the specifics of their deals with the labels. Caldwell said he thinks international governments need to standardize statutory licensing frameworks before there’s an interesting music tech startup opportunity. The next best thing would be a broadly available music API for startups to develop on, which Imeem had offered before it was taken out, Caldwell said.

“If You Can’t Sell the Shirt, Don’t Give It Away.” That’s a direct quote from GitHub founder Tom Preston-Werner, who talked about making reasoned decisions to build and grow a company. (He was being both literal and metaphorical about buying and distributing schwag, the oh-so-common startup pursuit.) Preston-Werner thinks bootstrapping instead of raising outside capital has been critical to GitHub’s success as a collaborative software development platform. The company only spends money when it can see a direct impact. If you make decisions that are positive for both you and your users, by definition, you’ll both win, and that’s good, was Preston-Werner’s message.

It’s Not Another Bubble. (Really!) Graham said in his own presentation that competition between super angels and VCs is good for startups. Now super angels are becoming more like VCs and VCs more like super angels,with quicker and smaller rounds invested from other people’s money and not necessarily requiring a board seat in return. Graham said that while valuations might be up, there’s not a larger bubble going on. Companies that can persuade angels that an acquisition is near and VCs that an IPO is in the future will get the best of both worlds. However, the question of whether super angels can have a sustainable business based on their smaller exits is still unanswered, said Graham.

Some People Are Just Born for It. Facebook CEO Mark Zuckerberg says that he didn’t really know Facebook was going to turn into anything until it did. Even when the company raised its first outside funding from Peter Thiel, the founders made it clear they hadn’t decided whether or not to go back to school. However, it wasn’t really that random. Zuckerberg says his mother told him in retrospect that she realized he wasn’t going back after he started deferring school to work on Facebook. His sister was even more clairvoyant: “Before I started college, my youngest sister made a bet with me that she would finish college before I did,” said Zuckerberg. “So I guess I owe her $50.”

Join Somebody Else’s Startup. Quora co-founder Adam D’Angelo focused much of his talk on the idea that if you want to be an entrepreneur, a great way to learn is to be an early employee at someone else’s promising startup where you can gather experience, recognition and connections. Obviously, that was D’Angelo’s experience, as an early employee and CTO of Facebook. But the decision to join Facebook wasn’t necessarily obvious at the time, he said:

I was leaning towards Google (s goog) and talked to [early Facebook president] Sean Parker on the phone, and he said, “Adam, if you don’t take this I guarantee you will regret it… He said the company might be worth $1 billion… He said it would be the best possible education I could have in how to start and grow a company. It’s turned out to be much more true than I realized.”

Conviction Isn’t Everything. “You’re not building a piece of art; it’s a tool,” said Groupon CEO Andrew Mason. He discussed how the previous iteration of his startup, a collective activism platform, was a lofty idea but ultimately the wrong one. It took just a month to make the first version of Groupon, and since then, Mason’s focus on making Groupon useful, practical, constrained and paranoid has spelled its success, he said. The company now has a 2,500-person staff that’s a “deal-creating machine,” Mason said.

Scaling Also Isn’t Everything. Quora’s D’Angelo: “It’s OK to do something that’s not scalable if it gets you to a position where you’ll have other strengths that will make up for this in the future.” At Quora, he and other early employees spent days answering questions on the service so when they opened it up to users there would be an archive of good content. Facebook paid early interns to index college course catalogs so it could provide a feature where students shared which classes they were taking. AirBnB’s founders went door-to-door when they were trying to break through and recruit users. “Do things that won’t scale; it will teach you,” Chesky said.

Mistakes Were Made. Facebook’s growth from a site to a platform may seem fated at this point, but it wasn’t. The initial architecture of the Facebook platform was the biggest technical mistake that the company made early on, said Zuckerberg in response to a question from Y Combinator’s Jessica Livingston. “I think we just got it completely inverted, and we’re still paying the costs of this,” Zuckerberg said. More precisely, “FBML was all about developers putting some sort of visual markup on a person’s profile page. It was not about the social graph or the connections behind it.” The company has since re-architected its platform to be the inverse, where the Open Graph brings in content from all over the web as Facebook objects integrated into the site experience. Facebook has now finally made it to 1 million developers on its platform, said Zuckerberg, “but it’s taken years to get to that point.”

Interesting information; I like how Tom Preston attempted to bring to light the amount of luck involved in any of the success equation. On the flip side Mark does mention that he originally had no initial idead how successful Facebook would be.

I would sum it up as:
Once you’ve done your best; luck is still the final ingredient that makes or brakes you.

Amazing article Liz, lots of good stuff in here for entrepreneurs to learn from. I love the don’t do a music startup, I swear if I see another one I will call up the investors and demand to know how they were sold on the deal. If you can successfully pitch a music startup to a VC right now, then you can sell anything!

Thanks for sharing this Liz. I agree with most of what you’ve written, except I guess the first lesson. When things aren’t going right at startup A, you might consider dropping the whole thing and begin a startup B.

Of course you don’t want to end up switching startups every month, but when you feel you have to drop out – drop out. Y Combinator picked them, but not all the other startups that didn’t die (yet). That could simply be luck ;)

I think the merit of the lesson is that sticking with their idea actually did work, way beyond reasonable expectations. In most cases it’s probably best to cut your losses but for these guys holding out actually was worth it.

Hey Liz! Trouble is, one never knows what the next “big thing” in the digital sphere will be. I was talking to a gentleman the other day whose Dad had spent decades with AT&T. The company blew its chance to corner the cellphone and videophone markets early on because executives didn’t think ANYONE would want to carry around a telephone or send what we’ve come to know as “instant” and text messages back and forth with other users! Was Facebook an accident or just a “perfect storm” of events that came together?

Best statement that was never made….. “Don’t quit your day job.”. No fair warnings about the end of innovation? How startups as we know them won’t be around in 10 years? How flooded tech markets dilute everybody? How the power of brand will become your most valuable commodity?

Some very high quality and memorable presentations (better than many of the other conferences I’ve streamed, although I still need to catch up with all of them).

As far as the music startups presentation goes, Caldwell put an emphasis on the problems of negotiating with record labels. Some music startups have nothing to do with using content from signed artists on a subscription basis. Some sites might cater to music education or a number of other musical outlets, so pigeonholing the whole “music startup” category is a bit harsh in my opinion.